[Cite as Columbia Gas Transm. Corp. v. Levin, 117 Ohio St.3d 122, 2008-Ohio-511.]

COLUMBIA GAS TRANSMISSION CORPORATION, APPELLEE AND CROSS-

APPELLANT, v. LEVIN, TAX COMMR., APPELLANT AND CROSS-APPELLEE.

[Cite as Columbia Gas Transm. Corp. v. Levin,

117 Ohio St.3d 122, 2008-Ohio-511.]

Personal-property tax — Company primarily engaged in interstate transportation

of natural gas is a pipeline company, not a natural gas company, for

purpose of taxing company’s personal property.

(No. 2006-1443 – Submitted May 2, 2007 – Decided February 14, 2008.)

APPEAL and CROSS-APPEAL from the Board of Tax Appeals, No. 2003-K-1876.

__________________

CUPP, J.

{¶ 1} In this matter, the Tax Commissioner appeals from a decision of

the Board of Tax Appeals (“BTA”) that reversed the Tax Commissioner’s

determination that Columbia Gas Transmission Corporation (“Columbia”) is an

interstate-pipeline company as defined in R.C. 5727.01(D)(5) for the purpose of

taxing the personal property of an Ohio public utility. The BTA held instead that

Columbia satisfied the definition of a natural gas company in R.C. 5727.01(D)(4)

and was thus entitled to have its personal property assessed at the 25 percent

valuation rate for such companies in R.C. 5727.111(C), rather than the 88 percent

rate for pipeline companies in R.C. 5727.111(D). After review, we have

determined that the BTA’s decision was unreasonable and unlawful, and

therefore, in accordance with R.C. 5717.04, it is reversed. We further find that

Columbia’s cross-appeal is without merit, and it is overruled.

{¶ 2} In 2000, the General Assembly amended R.C. 5727.111 to reduce

the assessment rate on the value of public-utility personal property of Ohio natural

gas companies from 88 percent to 25 percent. The 25 percent rate became

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effective beginning with the 2001 tax year. See Am.Sub.S.B. No. 287, 148 Ohio

Laws, Part V, 11536, 11549-11550.

{¶ 3} Columbia operates a natural gas pipeline that runs through a

number of states. Columbia also maintains an underground system for storing

natural gas. For the 2000 and 2001 tax years,1 the Tax Commissioner assessed

Columbia’s personal property at the 88 percent rate for natural-gas-pipeline

companies.

{¶ 4} Columbia objected to having its taxable property assessed at the 88

percent rate. Columbia claimed that it is a natural gas company under R.C.

5727.01(D)(4), and it requested that the Tax Commissioner reassess its personal

property at the 25 percent rate for natural gas companies in R.C. 5727.111(C).

{¶ 5} The Tax Commissioner found that Columbia was not a natural gas

company under R.C. 5727.01(D)(4) because it does not supply or distribute

natural gas directly to end-use consumers; rather, Columbia transports natural gas

interstate through a network of pipelines. Specifically, the Tax Commissioner

stated that Columbia’s “transportation and storage services are for local gas

distribution companies and industrial and commercial customers that contract for

gas with producers or marketers. Therefore, [Columbia] is properly classified as a

pipeline company under R.C. 5727.01(D)(5).”

{¶ 6} The Tax Commissioner also found that Columbia does not fit the

profile of a typical natural gas company. Such companies usually operate in one

state only, while pipeline companies tend to be interstate businesses. The Tax

Commissioner further noted that the Public Utilities Commission of Ohio

(“PUCO”) regulates natural gas companies that operate in Ohio, and PUCO does

not consider Columbia a natural gas company. Instead, the Federal Energy

1. Columbia’s statutory challenges pertain only to the 2001 tax year, while its constitutional challenges pertain to the 2000 and 2001 tax years.

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Regulatory Commission (“FERC”) regulates interstate-pipeline companies, and

Columbia is subject to regulation by FERC, not PUCO.

{¶ 7} Columbia appealed the Tax Commissioner’s final determination to

the BTA. The BTA reversed the Tax Commissioner, finding that Columbia

satisfied the definition of a natural gas company in R.C. 5727.01(D)(4). The BTA

found that R.C. 5727.01(D)(4) was unambiguous and that Columbia satisfied the

statutory definition by directly supplying “natural gas to industrial, power-

generating, residential, and farm customers for the purposes (i.e., lighting, power,

or heating) delineated in R.C. 5727.01(D)(4).” The BTA also determined that,

while Columbia may satisfy the definition of a pipeline company in R.C.

5727.01(D)(5), neither R.C. 5727.01(D)(4) nor (5) imposes a “primary business”

test as an element in determining under which definition an entity should be

classified for tax purposes. Accordingly, the BTA held that Columbia was

entitled to have its property assessed at 25 percent.

{¶ 8} Columbia also argued that applying the pipeline assessment rate to

its property violates the Equal Protection and Due Process Clauses of the United

States and Ohio Constitutions and the Commerce and the Supremacy Clauses of

the United States Constitution. The BTA recognized that it lacked jurisdiction to

decide the merits of Columbia’s constitutional challenges. See Cleveland Gear

Co. v. Limbach (1988), 35 Ohio St.3d 229, 231, 520 N.E.2d 188.

{¶ 9} The Tax Commissioner appealed from the BTA’s decision.

Columbia filed a protective cross-appeal, again raising its constitutional

arguments.

Standard of Review

{¶ 10} In reviewing a decision of the BTA, we determine whether it is

“reasonable and lawful.” Columbus City School Dist. Bd. of Edn. v. Zaino (2001),

90 Ohio St.3d 496, 497, 739 N.E.2d 783. We “will not hesitate to reverse a BTA

decision that is based on an incorrect legal conclusion.” Gahanna-Jefferson Local

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School Dist. Bd. of Edn. v. Zaino (2001), 93 Ohio St.3d 231, 232, 754 N.E.2d 789.

However, we will affirm the BTA’s determinations of factual issues if the record

contains reliable and probative evidence to support the BTA’s findings. Am. Natl.

Can Co. v. Tracy (1995), 72 Ohio St.3d 150, 152, 648 N.E.2d 483.

{¶ 11} The burden rests on the taxpayer “to show the manner and extent

of the error in the Tax Commissioner’s final determination.” Stds. Testing

Laboratories, Inc. v. Zaino, 100 Ohio St.3d 240, 2003-Ohio-5804, 797 N.E.2d

1278, ¶ 30. The Tax Commissioner’s findings “are presumptively valid, absent a

demonstration that those findings are clearly unreasonable or unlawful.”

Nusseibeh v. Zaino, 98 Ohio St.3d 292, 2003-Ohio-855, 784 N.E.2d 93, ¶ 10.

The Tax Commissioner’s Appeal

Is a Primary-Business Test Applicable to R.C. 5727.01?

{¶ 12} The Tax Commissioner contends that for determining the proper

assessment rate to apply to public-utility property under R.C. 5727.111, an

interstate-pipeline company that primarily transports natural gas through pipelines

from production and wholesale sources to natural gas distribution systems is a

“pipe-line company” as defined by R.C. 5727.01(D)(5), and not a “natural gas

company” as defined by R.C. 5727.01(D)(4).

{¶ 13} For purposes of taxing a public utility, a person includes “a natural

gas company when engaged in the business of supplying natural gas for lighting,

power, or heating purposes to consumers within this state.” See former R.C.

5727.01(D)(4).2 According to R.C. 5727.01(D)(5), a person also includes “a

pipe-line company when engaged in the business of transporting natural gas, oil,

2. R.C. 5727.01(D)(4) was amended during the 2001 tax year to add the words “or distributing” after the word “supplying.” The amendment also excluded from the definition of natural gas company “a person that is a governmental aggregator or retail natural gas supplier as defined in” R.C. 4929.01. All references to R.C. 5727.01(D)(4) are to the former version, which was controlling during the time period involved in this matter. Sub.H.B. No. 9, 149 Ohio Laws, Part II, 3857, 3895-3896.

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or coal or its derivatives through pipes or tubing, either wholly or partially within

this state.”

{¶ 14} The Tax Commissioner maintains that the BTA overlooked the

dispositive statute on this issue: R.C. 5727.02. The Tax Commissioner argues

that R.C. 5727.02(A) expressly establishes a primary-business test for purposes of

defining “natural gas company” under R.C. 5727.01(D)(4). In contrast, Columbia

argues that R.C. 5727.02 does not address how to distinguish between types of

public utilities (e.g., between pipeline and natural gas companies). Rather, it

establishes a test for determining whether an entity is a “public utility” at all.3

{¶ 15} The BTA found that “[n]either R.C. 5727.01(D)(4) nor (5) imposes

a ‘primary business’ test as an element in determining under which definition an

entity should be classified for tax purposes.” The BTA mentioned R.C. 5727.02

in passing, indicating that the statute differentiated “between ‘primary’ and

‘incidental’ business activities of various public utilities referenced within R.C.

Chapter 5727.” Yet the BTA did not analyze or apply R.C. 5727.02 to this

matter. We find that the BTA erred in failing to construe R.C. 5727.01 in pari

materia with R.C. 5727.02.

{¶ 16} For the 2001 tax year, R.C. 5727.02 provided:

{¶ 17} “As used in this chapter, ‘public utility,’ ‘electric company,’

‘natural gas company,’ ‘pipe-line company,’ ‘water-works company,’ ‘water

transportation company’ or ‘heating company’ does not include any of the

following:

{¶ 18} “(A) Any person that is engaged in some other primary business to

which the supplying of electricity, heat, natural gas, water, water transportation,

steam, or air to others is incidental.” See Am.Sub.S.B. No. 3, 148 Ohio Laws,

Part IV, 7962, 8080.

3. Columbia incorrectly claims that this issue was not preserved for appeal; the Tax Commissioner raised this issue in his amended notice of appeal. See R.C. 5717.04.

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{¶ 19} The first rule of statutory construction is to look at the statute’s

language to determine its meaning. If the statute conveys a clear, unequivocal,

and definite meaning, interpretation comes to an end, and the statute must be

applied according to its terms. Lancaster Colony Corp. v. Limbach (1988), 37

Ohio St.3d 198, 199, 524 N.E.2d 1389. Courts may not delete words used or

insert words not used. Cline v. Ohio Bur. of Motor Vehicles (1991), 61 Ohio

St.3d 93, 97, 573 N.E.2d 77.

{¶ 20} We hold that R.C. 5727.02 establishes a primary-business test for

determining whether an entity is a public utility for tax purposes and also for

distinguishing between types of public utilities. “Public utility” is one of the

entities to which the statute applies. But the statute also applies to an electric

company, natural gas company, pipeline company, water-works company, water-

transportation company, or heating company. R.C. 5727.02 separates these

classifications by use of the word “or,” which is defined “as a function word

indicating an alternative between different or unlike things.” Pizza v. Sunset

Fireworks Co., Inc. (1986), 25 Ohio St.3d 1, 4-5, 25 OBR 1, 494 N.E.2d 1115.

See also R.C. 1.42 (“Words and phrases shall be read in context and construed

according to the rules of grammar and common usage”). The General

Assembly’s use of the disjunctive “or,” as opposed to the conjunctive “and,”

indicates that the classifications are intended to be read separately from each

other, and public utility is only one of the classifications to which R.C. 5727.02

applies.

{¶ 21} Construed in pari materia with R.C. 5727.01, R.C. 5727.02(A)

applies to those public utilities defined in R.C. 5727.01 as engaged in the business

of supplying a particular commodity (e.g., electricity, heat, natural gas).

Accordingly, R.C. 5727.02(A) would except a company from one or more of the

public-utility classifications in its first paragraph if that company is engaged in

some other primary business to which supplying a particular commodity is

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7

incidental. Indeed, the BTA has previously construed R.C. 5727.02 in the same

manner. See Cent. Trust Co. v. Lindley (July 25, 1979), B.T.A. No. 78-C-244

(reading R.C. 5727.01 and 5727.02 in pari materia to find that company was not a

“heating company” because it primarily engaged in another business and only

incidentally supplied steam to others); Chrysler Corp. v. Tracy (Jan. 21, 1994),

B.T.A. No. 91-K-1523, 1994 WL 19032, at *11, affirmed on other grounds

(1995), 73 Ohio St.3d 26, 652 N.E.2d 185 (adopting the reasoning of Cent. Trust

to find that company was not a natural gas company because it was primarily

engaged in marketing natural gas rather than supplying natural gas to consumers).

{¶ 22} Columbia counters that if it falls outside the definition of “natural

gas company” because it engages in some other primary business to which

supplying natural gas is incidental, then it also cannot qualify as a pipeline

company, and therefore it is not a public utility. Columbia’s argument is without

merit for the following reasons.

{¶ 23} First, the General Assembly chose to distinguish between natural

gas companies and pipeline companies by defining them differently in R.C.

5727.01(D)(4) and (5). Columbia could be classified as a pipeline company – and

hence a public utility – and yet not be a natural gas company, because supplying

natural gas is only incidental to its primary business of transporting natural gas.

{¶ 24} Second, pipeline companies are not included in the list of

companies that are excepted by R.C. 5727.02(A). The first paragraph of R.C.

5727.02 lists those entities that can be excepted from the definitions set forth in

R.C. 5727.01. R.C. 5727.02(A), however, applies only to those entities supplying

electricity, heat, natural gas, water, water transportation, steam, or air to others. A

pipeline company is any person “transporting natural gas, oil, or coal or its

derivatives through pipes or tubing, either wholly or partially within this state.”

(Emphasis added.) R.C. 5727.01(D)(5). Because pipeline companies are those

defined as “transporting” rather than “supplying” a commodity, division (A) of

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R.C. 5727.02 cannot act to except pipeline companies. In short, contrary to

Columbia’s argument, applying R.C. 5727.02(A) to this matter would not have

the effect of disqualifying it as a natural gas company, as a pipeline company, and

as a public utility.

{¶ 25} Accordingly, as applied to this matter, R.C. 5727.02(A)(1)

provides that a natural gas company does not include “any person that is engaged

in some other primary business to which the supplying of * * * natural gas * * *

to others is incidental.” Thus, although Columbia may fall within the definition

of “natural gas company” in R.C. 5727.01(D)(4) by supplying natural gas for

lighting, power, or heating purposes to consumers within this state, according to

R.C. 5727.02(A), it may not be considered a natural gas company for the purpose

of taxing a public utility if it is engaged in some other primary business to which

supplying natural gas to others is incidental.

{¶ 26} Columbia’s Primary Business. The evidence in this case shows

that Columbia is primarily engaged in the business of transporting natural gas

interstate through a network of pipelines in ten states. Columbia offers “a variety

of services related to the movement of natural gas, specifically transportation,” as

well as services involving the underground storage of natural gas.

{¶ 27} Testimony before the BTA indicated that Columbia’s primary

customers are natural gas companies and natural gas marketers. Natural gas

companies, generally termed local distribution companies (“LDCs”), are

companies that distribute natural gas by receiving gas from a pipeline company’s

transmission system and delivering the gas to the end user.4 Marketers use

Columbia’s pipeline capacity to provide bundled natural gas services for their

customers.

4. LDCs located in Ohio satisfy the definition of “natural gas company.” R.C. 4905.03(A)(6); see generally Gen. Motors Corp. v. Tracy (1997), 519 U.S. 278, 282, 117 S.Ct. 811, 136 L.Ed.2d 761.

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{¶ 28} Columbia does not own any of the natural gas that it transports, nor

does it own any distribution or supplying property. Further evidence revealed that

Columbia’s pipelines are not configured to provide a substantial delivery service

to residential customers.

{¶ 29} Columbia does have “direct-connect customers,” i.e., customers

that receive gas directly from a Columbia transmission pipeline rather than from

an LDC. Columbia’s direct-connect customers include power companies,

industrial customers, and farm-tap customers. In fact, Columbia has almost

32,000 farm-tap customers.

{¶ 30} However, according to Carl Levander, a vice president for

Columbia’s parent corporation, NiSource, these customers represent a “finite

universe” of end-use customers who are located in close proximity to Columbia’s

pipelines. Moreover, the volume of gas transported to these direct-connect

customers is a “relatively small percentage” and the revenue generated from these

customers is “minimal compared to the total revenues” generated from

Columbia’s transmission business. Indeed, according to Columbia’s Ohio Public

Utility Gross Receipts Tax Reports for tax years 2000 and 2001, Columbia did not

report any revenue from natural gas distribution; all receipts were from natural

gas transmission.

{¶ 31} In sum, the vast majority of Columbia’s pipeline business is the

interstate transportation of natural gas. Any natural gas supplied to its direct-

connect customers is incidental to Columbia’s primary business as a pipeline

company. Thus, pursuant to R.C. 5727.02(A), Columbia does not fall within the

definition of a natural gas company in R.C. 5727.01(D)(4).

Columbia’s Contrary Arguments

{¶ 32} Columbia contends that an Ohio taxpayer that transports natural

gas interstate by pipeline and delivers natural gas, directly and indirectly, to Ohio

consumers satisfies the definition of a “natural gas company” in R.C.

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5727.01(D)(4) and is entitled to be taxed as a natural gas company under R.C.

5727.111(C). Columbia maintains that delivering natural gas to even a small

number of consumers, and especially to large-volume consumers such as its

power and industrial customers, is adequate to put Columbia in the business of

supplying and distributing natural gas.

{¶ 33} Columbia’s primary argument to support this claim is that statutes

imposing a tax are to be construed strictly against the state and liberally in favor

of the taxpayer. According to Columbia, because it satisfies the definition of both

a natural gas company under R.C. 5727.01(D)(4), and a pipe-line company under

R.C. 5727.01(D)(5), the statutes must be construed to give Columbia the benefit

of the more favorable category.

{¶ 34} Columbia is correct that a statute that imposes a tax requires strict

construction against the state, with any doubt resolved in favor of the taxpayer.

See Gulf Oil Corp. v. Kosydar (1975), 44 Ohio St.2d 208, 73 O.O.2d 507, 339

N.E.2d 820, paragraph one of the syllabus; Lancaster Colony Corp., 37 Ohio

St.3d at 199, 524 N.E.2d 1389; Lakefront Lines, Inc. v. Tracy (1996), 75 Ohio

St.3d 627, 629, 665 N.E.2d 662. But rules of strict construction do not apply if

the statutory language is plain and unambiguous, because such statutes are to be

applied as written, not construed in any party’s favor. See Storer

Communications v. Limbach (1988), 37 Ohio St.3d 193, 194, 525 N.E.2d 466;

Lancaster Colony Corp., 37 Ohio St.3d at 199, 524 N.E.2d 1389. R.C.

5727.02(A) clearly excepts Columbia from the definition of natural gas company

in R.C. 5727.01(D)(4) because Columbia’s primary business is interstate natural

gas transportation and not local distribution.

{¶ 35} Moreover, we have rejected the strict-construction doctrine when

its application would result in unreasonable or absurd consequences. See CC

Leasing Corp. v. Limbach (1986), 23 Ohio St.3d 204, 207, 23 OBR 364, 492

N.E.2d 421. Indeed, it is the function of courts to construe statutory language to

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effect a just and reasonable result. Gulf Oil Corp., 44 Ohio St.2d 208, 73 O.O.2d

507, 339 N.E.2d 820, paragraph two of the syllabus. See also R.C. 1.47(C) (in

enacting a statute, it is presumed that a just and reasonable result is intended).

{¶ 36} It would be unreasonable to tax Columbia’s entire property under

the lower natural-gas-company rate when Columbia’s pipeline and equipment are

primarily used in transporting natural gas and not in supplying gas to end-user

consumers. Columbia would have us tax its personal property based on a minor

incidental use, rather than its major and primary use. But Columbia’s

interpretation of R.C. 5727.01(D)(4) and (5) would blur the distinction between

natural gas companies and pipeline companies. Indeed, were we to accept

Columbia’s position, an interstate-pipeline company supplying natural gas to even

one end-use consumer could be classified as an Ohio natural gas company for the

purpose of taxing the personal property of a public utility.

{¶ 37} Columbia additionally claims that by delivering natural gas to

LDCs for subsequent delivery to the end-use customers of the LDCs, Columbia is

supplying natural gas to Ohio consumers. Yet one is a natural gas company only

when “supplying natural gas for lighting, power, or heating purposes to

consumers within this state.” R.C. 5727.01(D)(4). When Columbia transports

natural gas to LDCs, who then deliver the gas to end-use consumers, it is not

“supplying” natural gas to the LDCs for the purposes contemplated by R.C.

5727.01(D)(4). See Chrysler Corp. v. Tracy, 73 Ohio St.3d 26, 652 N.E.2d 185.

Under Columbia’s interpretation, all pipeline companies would automatically

qualify as Ohio natural gas companies simply by transporting gas to an LDC’s

distribution facility. That cannot be the construction intended by the General

Assembly.

Conclusion

{¶ 38} Based on the foregoing, we find that the BTA erred in failing to

construe R.C. 5727.01 in pari materia with R.C. 5727.02. R.C. 5727.02(A)

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establishes a primary-business test for purposes of defining a natural gas company

pursuant to R.C. 5727.01(D)(4). Because Columbia is primarily engaged in the

business of a pipeline company, it is not a natural gas company for purposes of

Ohio’s personal property tax on public utilities. Accordingly, we reverse the

decision of the BTA.

Columbia Gas Transmission’s Cross-Appeal

{¶ 39} Columbia has filed a protective cross-appeal contending that the

assessment of its personal property at the 88 percent rate for pipeline companies is

impermissible as a matter of constitutional law. We reject each of Columbia’s

constitutional challenges.

Due Process

{¶ 40} In proposition of law No. 2, Columbia maintains that under the

Tax Commissioner’s interpretation, R.C. 5727.01(D)(4) and (5) fail to adequately

define tax classifications subject to different assessment rates and are void for

vagueness on their face and as applied, in violation of due process protections in

the Ohio and United States Constitutions.

{¶ 41} A court’s power to invalidate a statute “is a power to be exercised

only with great caution and in the clearest of cases.” Laws are entitled to a

“strong presumption of constitutionality,” and the party challenging the

constitutionality of a law “bears the burden of proving that the law is

unconstitutional beyond a reasonable doubt.” Yajnik v. Akron Dept. of Health,

Hous. Div., 101 Ohio St.3d 106, 2004-Ohio-357, 802 N.E.2d 632, ¶ 16; Buckley v.

Wilkins, 105 Ohio St.3d 350, 2005-Ohio-2166, 826 N.E.2d 811, ¶ 18.

{¶ 42} “When a statute is challenged under the due-process doctrine

prohibiting vagueness, the court must determine whether the enactment (1)

provides sufficient notice of its proscriptions to facilitate compliance by persons

of ordinary intelligence and (2) is specific enough to prevent official arbitrariness

or discrimination in its enforcement.” Norwood v. Horney, 110 Ohio St.3d 353,

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13

2006-Ohio-3799, 853 N.E.2d 1115, ¶ 84, citing Kolender v. Lawson (1983), 461

U.S. 352, 357, 103 S.Ct. 1855, 75 L.Ed.2d 903. Moreover, laws directed to

economic matters are subject to a less strict vagueness test than laws interfering

with the exercise of constitutionally protected rights. Hoffman Estates v. Flipside,

Hoffman Estates, Inc. (1982), 455 U.S. 489, 498-499, 102 S.Ct. 1186, 71 L.Ed.2d

362.

{¶ 43} Facial Challenge. A court examining a facial-vagueness challenge

to a statute that implicates no constitutionally protected conduct will uphold that

challenge only if the statute is impermissibly vague in all of its applications.

Hoffman Estates, 455 U.S. at 494-495, 102 S.Ct. 1186, 71 L.Ed.2d 362. Yet

Columbia makes no claim or showing that the statutes are invalid in all

applications. Therefore, we reject Columbia’s facial challenge.

{¶ 44} As-Applied Challenge. Columbia claims that when a company

both transports natural gas and supplies it to consumers, the definitions of “natural

gas company” and “pipeline company” provide no objective basis for classifying

that company as one or the other. Thus, according to Columbia, the Tax

Commissioner lacks legislative guidance and must simply decide for himself

under which classification the company falls. In Columbia’s view, the Tax

Commissioner’s “subjective” decision is “wholly unconstrained” and opens the

door to arbitrary and discriminatory application.

{¶ 45} Columbia makes a blanket assertion that “[u]nder any meaningful

vagueness standard, the statute here fails. * * * It attempts to draw a tax-

determinative distinction between those companies that ‘supply’ natural gas and

those that ‘transport’ natural gas – a distinction that in today’s natural gas market

is ‘substantially incomprehensible.’ ” Quoting Buckley v. Wilkins, 105 Ohio St.3d

350, 2005-Ohio-2166, 826 N.E.2d 811, ¶ 19.

{¶ 46} A civil statute that does not implicate the First Amendment is

unconstitutionally vague only if it is so vague and indefinite that it sets forth no

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standard or rule or if it is substantially incomprehensible. Id.; Hoffman Estates,

455 U.S. at 495, 102 S.Ct. 1186, 71 L.Ed.2d 362, fn. 7. Moreover, the void-for-

vagueness doctrine “does not require statutes to be drafted with scientific

precision.” Perez v. Cleveland (1997), 78 Ohio St.3d 376, 378, 678 N.E.2d 537.

{¶ 47} R.C. 5727.01(D)(4) and (5) set forth specific definitions that

clearly distinguish between natural gas companies, which supply natural gas, and

pipeline companies, which transport natural gas. These are well-understood

industry terms that track the clear division between state and federal regulations

of the natural gas industry. See Natural Gas Act of 1938, Section 717(b), Title 15,

U.S.Code (defining FERC’s jurisdiction over the interstate transportation of

natural gas and exempting local distribution of gas from the Act); R.C. Chapter

4905 (PUCO has regulatory oversight over utilities that locally supply natural gas

to end-user consumers in Ohio). Furthermore, R.C. 5727.02 establishes a

primary-business test for distinguishing between the types of public utilities listed

in R.C. Chapter 5727. Thus, the statutes provide standards for determining

whether a company is classified as one or the other, and there is no basis for

finding that the statutes encourage arbitrary and discriminatory enforcement on

the part of the Tax Commissioner.

{¶ 48} Moreover, the availability of administrative remedies and appellate

review acts to check any threat of arbitrary and discriminatory enforcement. See

Perez v. Cleveland, 78 Ohio St.3d at 379, 678 N.E.2d 537, citing United States ex

rel. Fitzgerald v. Jordan (C.A.7, 1984), 747 F.2d 1120, 1130. See also Hoffman

Estates, 455 U.S. at 498, 102 S.Ct. 1186, 71 L.Ed.2d 362 (a “regulated enterprise

may have the ability to clarify the meaning of [a] regulation by its own inquiry, or

by resort to an administrative process”). The Tax Commissioner’s initial

assessment was based on Columbia’s own Annual Ohio Public Utility Property

Tax Natural Gas Pipeline Company Reports. Columbia was able to object to the

Tax Commissioner’s initial assessments by filing a petition for reassessment.

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Columbia was then able to appeal the Tax Commissioner’s final determination to

the BTA. Finally, Columbia had an appeal as of right to this court. Thus,

contrary to Columbia’s assertion, the Tax Commissioner’s determination was not

“wholly unconstrained.”

{¶ 49} In sum, Columbia has not shown that the statutes invite subjective

or discriminatory enforcement. See Grayned v. Rockford (1972), 408 U.S. 104,

113, 92 S.Ct. 2294, 33 L.Ed.2d 222. Because Columbia has not met its burden of

showing that the statutes here are unconstitutional beyond a reasonable doubt, we

overrule its second proposition of law.

Federal Commerce Clause

{¶ 50} Columbia contends in proposition of law No. 3 that where a

federally regulated interstate-pipeline company competes in serving the same

transportation and storage functions as state-regulated LDCs, the Commerce

Clause forbids assessing the interstate pipeline’s property at a higher rate than that

of the competing LDCs.

{¶ 51} The Commerce Clause grants Congress the power “[t]o regulate

Commerce * * * among the several States.” Clause 3, Section 8, Article I, United

States Constitution. The United States Supreme Court has recognized a negative

or “dormant” Commerce Clause power that “prohibits state taxation, or

regulation, that discriminates against or unduly burdens interstate commerce and

thereby ‘imped[es] free private trade in the national marketplace,’ ” (Citations

omitted.) Gen. Motors Corp. v. Tracy (1997), 519 U.S. 278, 287, 117 S.Ct. 811,

136 L.Ed.2d 761, quoting Reeves, Inc. v. Stake (1980), 447 U.S. 429, 437, 100

S.Ct. 2271, 65 L.Ed.2d 244.

{¶ 52} Under consideration in Gen. Motors Corp. v. Tracy, 73 Ohio St.3d

at 30, 652 N.E.2d 188, was an Ohio statute that imposed a general sales tax on

sales of natural gas in the state and a use tax on natural gas purchases out-of-state.

Ohio’s tax scheme exempted natural gas sales by entities that met the definition of

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16

“natural gas company” under R.C. 5727.01(D)(4). It was undisputed that natural

gas utilities, or LDCs, located in Ohio satisfied the definition of “natural gas

company.” General Motors, a buyer of natural gas from an out-of-state marketer,

challenged the exemption of LDCs from the sales and use tax imposed on sellers

of natural gas. We found that non-LDC gas sellers, such as producers and

independent marketers, were not natural gas companies under R.C.

5727.01(D)(4); therefore, their sales were outside the exemption and subject to

the tax. Id., citing Chrysler Corp. v. Tracy, 73 Ohio St.3d 26, 652 N.E.2d 185

(both cases were issued the same day).

{¶ 53} The United States Supreme Court held that there was no

Commerce Clause violation in Gen. Motors Corp. because the supposedly favored

and disfavored entities were not similarly situated. 519 U.S. at 310, 117 S.Ct.

811, 136 L.Ed.2d 761. Specifically, the court found that the out-of-state

marketers did not serve the LDCs’ core market of small, captive end users of

natural gas, including residential customers who wanted or needed bundled

natural gas services and the protections afforded by utility regulation, and small-

volume buyers who would not benefit economically from purchasing gas on the

open market. Id. at 301-302, 117 S.Ct. 811, 136 L.Ed.2d 761. In short, the court

premised its holding that Ohio’s tax scheme was not facially discriminatory on the

view that LDCs and independent marketers were principally serving different

markets.

{¶ 54} Gen. Motors Corp. recognized that before a finding of

discrimination under the Commerce Clause could be made, different treatment

must be accorded to substantially similar entities. The court found that, where the

allegedly competing entities provide different products, the threshold question is

whether the companies are similarly situated for constitutional purposes. “This is

so for the simple reason that the difference in products may mean that the

different entities serve different markets, and would continue to do so even if the

January Term, 2008

17

supposedly discriminatory burden were removed. If in fact that should be the

case, eliminating the tax or other regulatory differential would not serve the

dormant Commerce Clause’s fundamental objective of preserving a national

market for competition undisturbed by preferential advantages conferred by a

State upon its residents or resident competitors.” Id. at 299, 117 S.Ct. 811, 136

L.Ed.2d 761. Therefore, we must first decide whether interstate-pipeline

companies and LDCs are similarly situated.

{¶ 55} Columbia maintains that there are no relevant differences between

interstate pipelines and LDCs that justify assessing interstate-pipeline companies

at an 88 percent valuation rate and LDCs at 25 percent. See R.C. 5727.111(C),

(D). We disagree.

{¶ 56} As in Gen. Motors Corp., the statutory scheme favors certain

entities that satisfy the definition of a natural gas company in R.C. 5727.01(D)(4).

Moreover, as in Gen. Motors Corp., the allegedly favored and disfavored entities

here principally serve different markets.

{¶ 57} The evidence in this case shows that interstate-pipeline companies

do not compete with Ohio LDCs to service the residential and small commercial

end-use natural gas consumer. Interstate-pipeline companies, like Columbia,

primarily transport natural gas interstate from production areas to LDCs. The

primary customers of interstate pipelines are not residential or small-volume end-

use consumers, but LDCs and independent and LDC-affiliated natural gas

marketers. Even after significant restructuring of the natural gas industry, the core

market of Ohio LDCs remains retail sales and distribution of natural gas to

residential and small commercial end-use consumers.

{¶ 58} “[I]n the absence of actual or prospective competition between the

supposedly favored and disfavored entities in a single market there can be no

local preference, whether by express discrimination against interstate commerce

or undue burden upon it, to which the dormant Commerce Clause may apply. The

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18

dormant Commerce Clause protects markets and participants in markets, not

taxpayers as such.” Gen. Motors Corp., 519 U.S. at 300, 117 S.Ct. 811, 136

L.Ed.2d 761. Because interstate-pipeline companies, like Columbia, and Ohio

LDCs do not compete in the same market, they are not “similarly situated” for

Commerce Clause purposes. Thus, we reject this claim.

Columbia’s Contrary Commerce Clause Arguments

{¶ 59} Columbia contends that interstate pipelines and LDCs are

“substantially similar” for Commerce Clause purposes. In Columbia’s view,

interstate pipelines and LDCs are part of the same natural gas distribution

network, own the same sorts of property, and compete with one another in various

ways.

{¶ 60} LDC Transmission Property. In Columbia’s view, LDCs do more

than merely engage in the local distribution of natural gas to end users; rather,

Columbia maintains that the evidence shows that LDCs are also engaged in the

“transmission” of natural gas in direct competition with interstate-pipeline

companies.

{¶ 61} Columbia submitted evidence to the BTA in an attempt to show

that Ohio LDCs own and operate significant amounts of transmission pipeline.

Columbia relied heavily on reports filed with the United States Department of

Transportation’s Office of Pipeline Safety, which distinguishes between

transmission and distribution based on the size and pressure strength of the

pipeline.

{¶ 62} Columbia’s evidence in this regard is not persuasive. For public-

utility-tax purposes, the Tax Commissioner has adopted FERC definitions that

distinguish between interstate transportation or transmission and local distribution

of natural gas. See Natural Gas Act of 1938, Section 717(B), Title 15, U.S.Code.

According to the FERC, pipeline diameter and pressure are not controlling for

purposes of distinguishing between interstate transportation and local distribution.

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19

See Midwestern Gas Transm. Co. (May 12, 1999), FERC No. CP98-538-001,

1999 WL 298625, at *7. Rather, the FERC defines interstate transportation as

beginning at the point where the interstate pipeline receives gas from the

gathering or production area and ending at the point where the interstate pipeline

delivers gas into the LDC’s distribution facility (commonly known as the “city

gate”). See Part 201(29)(B), Title 18, C.F.R. See also Midwestern Gas Transm.

Co. (Dec. 16, 1998), FERC No. CP98-538-000, 1998 WL 878038, at *4 (local

distribution – as opposed to interstate transportation – connotes a network of

small local lines used to transmit gas from a large interstate pipeline to individual

consumers spread out in a local geographic area).

{¶ 63} Furthermore, both FERC and federal courts have found that the

transportation of natural gas by an interstate pipeline directly to an end-user

constitutes transportation in interstate commerce, not local distribution. See

Oklahoma Natural Gas Co. v. Fed. Energy Regulatory Comm. (C.A.D.C.1990),

906 F.2d 708, 710; Pub. Utils. Comm. of California v. Fed. Energy Regulatory

Comm. (C.A.D.C.1990), 900 F.2d 269, 277.

{¶ 64} Nevertheless, Columbia claims that the FERC-defined

“‘distribution area’ is a subjective concept, and is often treated as simply referring

to a point where natural gas is transferred from an upstream pipeline company to a

downstream LDC” and that “[e]ven under this location-driven definition, several

Ohio LDCs identify a significant portion of their property as ‘transmission’ rather

than ‘distribution.’ ” However, Columbia’s argument ignores the testimony of its

own witnesses that the term “transmission” is also largely subjective and can have

different meanings for purposes of utility ratemaking, safety, and taxation. In fact,

in several instances, Columbia witnesses referred to LDC-owned “transmission”

pipelines that FERC would have classified as “distribution” pipelines.

{¶ 65} Moreover, Columbia’s witnesses had no specific knowledge

whether this “transmission” property was actually used by LDCs to provide

SUPREME COURT OF OHIO

20

transportation or distribution services. Finally, other testimony indicated that,

whether designated as transmission or distribution, LDC-owned pipelines were

primarily used to distribute gas to end-use customers. In short, Columbia’s

evidence does not show that interstate-pipeline companies are competing with

LDCs for the same transportation-service customers.

{¶ 66} Direct Competition Between Interstate Pipelines and LDCs.

Columbia claims that interstate-pipeline companies compete directly with Ohio

LDCs in (1) directly delivering gas to large industrial and electric power end users

and farm-tap customers, (2) providing storage services, and (3) providing

gathering or production services. However, as the Tax Commissioner points out,

the existence of other areas of actual or potential competition does not alter Gen.

Motors Corp.’s holding.

{¶ 67} In Gen. Motors Corp., the court considered whether current or

potential competition between marketers and LDCs in the noncaptive

(nonresidential) market requires treating marketers and LDCs alike for dormant

Commerce Clause purposes. That is, the court decided whether to “accord

controlling significance to the noncaptive market in which they compete, or to the

noncompetitive, captive market in which the local utilities alone operate.” Gen.

Motors Corp., 519 U.S. at 303-304, 117 S.Ct. 811, 136 L.Ed.2d 761.

{¶ 68} The court found that “a number of reasons support a decision to

give the greater weight to the captive market and the local utilities’ singular role

in serving it, and hence to treat marketers and LDCs as dissimilar for present

purposes.” Id. at 304, 117 S.Ct. 811, 136 L.Ed.2d 761. Significantly, the court

recognized the importance of traditional regulated service to the captive market

and an obligation to proceed cautiously so as not to jeopardize the LDCs’

continuing capacity to serve that market. Id. The court further noted that states

have an important stake in protecting the captive market and that state regulation

of natural gas sales to local consumers serves important interests in health and

January Term, 2008

21

safety, including requiring a dependable supply and ensuring that residential

customers are not frozen out of their houses in cold months. Id. at 306, 117 S.Ct.

811, 136 L.Ed.2d 761.

{¶ 69} Those interests are no less relevant to this matter than they were in

Gen. Motors Corp. Ohio continues its regulation of natural gas rates and services

to the benefit of residential and other small-volume users. See R.C. 4905.22

(requiring just and reasonable rates and adequate service and facilities) and R.C.

4905.14(B) (requiring each natural gas company to submit annual forecasts of

future gas supply and demand). Ohio requires LDCs to serve all customers and

ensure access to natural gas without discrimination. See R.C. 4905.02,

4905.03(A)(6), 4905.06, and 4905.35. See also R.C. 4929.02(A)(1) and (9) and

4929.03. Ohio also protects residential customers by requiring LDCs to follow

certain administrative procedures before terminating service, and additional

protections are afforded to ensure that Ohio LDCs provide continued service to

low-income, elderly, and handicapped residential customers. R.C. 4933.12 and

4933.122; Ohio Adm.Code 4901:1-18. And Ohio LDCs are currently default

providers, or providers of last resort, for customers who return to LDCs for

natural gas when an alternative supplier fails to provide service. See R.C.

4929.20(C)(2); Ohio Adm.Code 4901:1-27-12(G), (H), and (J).

{¶ 70} Columbia maintains that since Gen. Motors Corp. was decided,

LDCs have unbundled their product and now are able to sell transportation and

storage services separately from natural gas, meaning that LDCs directly compete

with interstate pipelines that provide the same services. However, Columbia

ignores the evidence that LDCs are still primarily serving the same residential and

small-business markets that they were serving at the time Gen. Motors Corp. was

decided.

{¶ 71} To be sure, LDCs now offer both bundled and unbundled services

and, as Columbia notes, they can sell natural gas, transportation service, and

SUPREME COURT OF OHIO

22

storage service separately. Nevertheless, the main competitors of LDCs in the

residential and small-business markets are not interstate-pipeline companies.

Rather, independent and LDC-affiliated marketers compete with LDCs for

commodity sales in this market. Moreover, marketers largely rely on the LDCs’

distribution network to deliver their natural gas to end-use customers. In other

words, interstate-pipeline companies do not compete for residential and small-

business customers for either natural gas sales or transportation services.

{¶ 72} Columbia also maintains that it competes with Ohio LDCs in the

residential market in direct delivery of natural gas to farm-tap customers.

However, the existence of these farm-tap customers does nothing to support

Columbia’s claim that it directly competes in the Ohio residential market.

{¶ 73} Farm-tap customers were described as rural customers who had

been granted the right to tap into Columbia’s interstate-transmission pipeline at

the time of construction. These farm taps were often given in exchange for an

easement through the customer’s land at the time of construction. At best, these

farm-tap customers represent a small, unique segment of the residential market.

Columbia offered evidence showing that it served over 30,000 farm-tap

customers. By way of comparison, Columbia’s affiliated LDC, Columbia Gas of

Ohio, distributes natural gas to approximately 1.3 million residential customers.

{¶ 74} Columbia’s Other Claims. Columbia alternatively argues that

Gen. Motors Corp. is distinguishable because (1) it involved a comparison

between a regulated utility and a nonregulated marketer, and (2) different taxes

(sales and property) were involved. Neither claim has merit.

{¶ 75} First, the outcome in Gen. Motors Corp. did not turn on a

comparison between regulated and unregulated entities. Rather, the court

determined that LDCs and independent marketers were not “similarly situated”

for dormant Commerce Clause purposes because they did not compete in the

LDCs’ core residential market, and eliminating any tax differential between the

January Term, 2008

23

LDCs and marketers would not alter the competitive nature of this market. Gen.

Motors Corp., 519 U.S. at 297-303, 117 S.Ct. 811, 136 L.Ed.2d 761. Columbia

has not shown in this case that it competes with LDCs in the residential market or

that it would compete in this market should we rule in its favor.

{¶ 76} Moreover, the fact that Columbia is “heavily regulated” does not

make it “similarly situated” to state-regulated LDCs for purposes of the

Commerce Clause. Columbia is a federally regulated interstate-pipeline company.

Congress and the courts have long treated federal and state regulation of the

natural gas industry separately by exempting local distribution of natural gas from

federal regulation. Indeed, the Gen. Motors Corp. court reaffirmed the continuing

importance of the states’ interest in regulating the local natural gas market, noting

that even amidst recent regulatory changes intended to increase competition in the

natural gas industry, Congress has done nothing to limit the states’ traditional

local regulation. See Gen. Motors Corp., 519 U.S. at 288-297, 117 S.Ct. 811, 136

L.Ed.2d 761 (describing historical evolution of natural gas industry and

Congress’s recognition of states’ vital role in regulating the local market).

{¶ 77} Second, Gen. Motors Corp. also did not turn on the nature of the

tax involved. In fact, the court suggested that the nature of the challenged tax was

largely irrelevant in light of Ohio’s complicated public-utility-property-taxation

scheme, which subjects public utilities and nonutilities alike to an array of

different tax burdens. Gen. Motors Corp., 519 U.S. at 307-308, 117 S.Ct. 811,

136 L.Ed.2d 761, fn. 16.

{¶ 78} In conclusion, Columbia’s failure to show that it is in direct

competition with Ohio LDCs in the residential market proves fatal to its dormant

Commerce Clause claim. Therefore, Columbia’s third proposition of law is

overruled.

Federal Supremacy Clause

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24

{¶ 79} Columbia argues in proposition of law No. 4 that assessing the

personal property of interstate-pipeline companies at a higher rate than that of

LDCs and general businesses with which interstate-pipeline companies compete

impairs and is inconsistent with federal regulatory authority and violates the

Supremacy Clause of the United States Constitution.

{¶ 80} The Supremacy Clause of Article IV of the United States

Constitution is the source of Congress’s power to preempt state law. “Preemption

may be express or implied, but in either case, the question is one of congressional

intent.” Michigan Consol. Gas Co. v. Panhandle E. Pipe Line Co. (C.A.6, 1989),

887 F.2d 1295, 1300, citing California Fed. S. & L. Assn. v. Guerra (1987), 479

U.S. 272, 281, 107 S.Ct. 683, 93 L.Ed.2d 613. In the absence of express statutory

language, Congress may implicitly intend to occupy a given field to the exclusion

of state law. Such intent may be properly inferred if (1) the pervasiveness of the

federal regulation precludes supplementation by the states, (2) the federal interest

in the field is sufficiently dominant, or (3) the object of the federal law and the

obligations imposed by it reveal the same purpose. Finally, even if Congress has

not entirely displaced state regulation in a particular field, federal law preempts

state law when it actually conflicts with federal law. A conflict will be found if it

is impossible to comply with both state and federal law, or if the state law is an

obstacle to fulfilling the purposes and objectives of Congress. Michigan Consol.

Gas Co., 887 F.2d at 1300-1301, citing Schneidewind v. ANR Pipeline Co. (1988),

485 U.S. 293, 299-300, 108 S.Ct. 1145, 99 L.Ed.2d 316.

{¶ 81} Columbia raises three distinct claims that Ohio’s different

assessment rates are incompatible with FERC’s pervasive regulation of wholesale

sales and interstate transportation of natural gas. We address each in turn.

{¶ 82} First, Columbia argues that the different assessment rates conflict

with FERC’s ratemaking authority by interfering with the ability of federally

regulated pipelines to pass along costs to their customers. Columbia complains

January Term, 2008

25

that the discriminatory nature of Ohio’s tax places interstate-pipeline companies

at a competitive disadvantage that requires them to discount their FERC-approved

rates.5

{¶ 83} Columbia’s argument assumes that interstate-pipeline companies

and LDCs compete in the segment of the natural gas market under FERC’s

exclusive regulatory jurisdiction. See generally Pub. Util. Comm. of California v.

Fed. Energy Regulatory Comm., 900 F.2d at 274-276 (describing FERC’s

jurisdiction over interstate transportation of natural gas and the states’ authority

over local distribution). Yet the record here fails to show any direct or significant

competition between interstate-pipeline companies and Ohio LDCs for the

interstate transportation of natural gas, i.e., from gathering or production areas to

local distribution areas. Moreover, the evidence indicated that discounting was a

function of the market and that state taxes were only one of several factors that

led interstate-pipeline companies to offer discounted rates. Thus, there is no merit

to Columbia’s claim that Ohio’s higher assessment rate conflicts with FERC’s

ability to regulate the rates of interstate-pipeline companies.

{¶ 84} Second, Columbia maintains that Ohio’s different assessments

undermine FERC policies favoring free competition in the market of natural gas

gathering. However, there is no evidence here that any interstate-pipeline

companies owned or operated natural gas gathering or production facilities in

Ohio during the tax years in question. Thus, it is difficult to see how Columbia –

or any interstate-pipeline company – was disadvantaged by a lower assessment

rate on gathering facilities owned by Ohio LDCs or general businesses.

{¶ 85} Third, Columbia contends that Ohio’s tax structure interferes with

recent FERC efforts to encourage interstate-pipeline direct connections to end

5. According to testimony, interstate pipelines may charge no more than their FERC-approved tariffed rates but may offer rates below their full tariffs.

SUPREME COURT OF OHIO

26

users. According to Columbia, the different assessment rates directly interfere

with Columbia’s ability to obtain direct connections.

{¶ 86} Yet a number of factors affect whether FERC will approve a

proposed direct connection or bypass facility. These factors include, among

others, the environmental impact of the proposed project, whether landowners are

inconvenienced, whether economically superior alternatives are available, the

existence of other transmission and distribution facilities in the area, whether

system access and reliability will be enhanced by the project, and whether

proposed transportation rates resulted from unfair competition or discriminatory

behavior. See generally Midcoast Interstate Transm., Inc., v. Fed. Energy

Regulatory Comm. (C.A.D.C.2000), 198 F.3d 960; Midwestern Gas Transm.,

FERC No. CP98-538-000, 1998 WL 878038.

{¶ 87} Undoubtedly, state taxes would play a role in any pipeline-

construction project. However, Congress does not preempt “every state statute

that has some indirect effect on rates and facilities” of interstate-pipeline

companies. See Schneidewind, 485 U.S. at 308, 108 S.Ct. 1145, 99 L.Ed.2d 316.

Here, Columbia has offered no credible evidence that Ohio’s assessment rate on

the property of an interstate-pipeline company interferes with FERC’s regulation

of direct connections or in any way restricts such arrangements.

{¶ 88} Accordingly, Columbia’s proposition of law No. 4 is overruled.

Equal Protection

{¶ 89} Columbia contends in proposition of law No. 5 that assessing the

personal property of interstate-pipeline companies at 88 percent while applying a

25 percent assessment rate to the property of Ohio LDCs and general businesses

with which the interstate pipelines compete violates the Equal Protection Clauses

of the United States and Ohio Constitutions.

{¶ 90} “The limitations placed upon governmental action by the federal

and state Equal Protection Clauses are essentially the same.” McCrone v. Bank

January Term, 2008

27

One Corp., 107 Ohio St.3d 272, 2005-Ohio-6505, 839 N.E.2d 1, ¶ 7. The Equal

Protection Clauses require that all similarly situated individuals be treated in a

similar manner. Id. at ¶ 6.

{¶ 91} A statutory classification that involves neither a suspect class nor

a fundamental right does not violate the Equal Protection Clauses if it bears a

rational relationship to a legitimate governmental interest. Menefee v. Queen City

Metro (1990), 49 Ohio St.3d 27, 29, 550 N.E.2d 181. Under the rational-basis

standard, a state has no obligation to produce evidence to sustain the rationality of

a statutory classification. Am. Assn. of Univ. Professors, Cent. State Univ.

Chapter v. Cent. State Univ. (1999), 87 Ohio St.3d 55, 58, 60, 717 N.E.2d 286.

Rather, the assessment of taxes is fundamentally a legislative responsibility and a

taxpayer challenging the constitutionality of a taxation statute bears the burden to

negate every conceivable basis that might support the legislation. Lyons v.

Limbach (1988), 40 Ohio St.3d 92, 94, 532 N.E.2d 106.

{¶ 92} Moreover, “[t]his already deferential standard ‘is especially

deferential’ in the context of classifications arising out of complex taxation law.”

Park Corp. v. Brook Park, 102 Ohio St.3d 166, 2004-Ohio-2237, 807 N.E.2d 913,

¶ 23, quoting Nordlinger v. Hahn (1992), 505 U.S. 1, 11, 112 S.Ct. 2326, 120

L.Ed.2d 1. States have great leeway in making classifications and drawing lines

that in their judgment produce reasonable systems of taxation. See Nordlinger,

505 U.S. at 11, 112 S.Ct. 2326, 120 L.Ed.2d 1.

{¶ 93} Equal Protection – LDCs and Interstate Pipelines. In Gen.

Motors Corp., the Supreme Court found that there was a rational basis for treating

LDCs and independent marketers differently for tax purposes. 519 U.S. at 311-

312, 117 S.Ct. 811, 136 L.Ed.2d 761. Accordingly, Columbia’s claim that Ohio’s

tax scheme violates the Equal Protection Clauses by treating LDCs and interstate

pipeline companies differently is rejected.

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28

{¶ 94} Equal Protection – Interstate Pipelines and Alternative-Fuel

Suppliers. Columbia also claims that the Tax Commissioner denied it equal

protection of the laws because he taxed the personal property of interstate-

pipeline companies at a higher assessment rate than the personal property of Ohio

taxpayers that transport “alternative fuels.”6 Columbia contends that natural gas

and alternative fuels – including coal and refined petroleum products such as fuel

oil and propane – are competing fuels, and that there is no rational basis for

different assessment rates on interstate-pipeline companies and transporters of

alternative fuels.

{¶ 95} However, “[t]he fact that one business competes with another

does not, of itself, mean that the two companies are similarly situated for purposes

of equal protection.” GTE N., Inc. v. Zaino, 96 Ohio St.3d 9, 2002-Ohio-2984,

770 N.E.2d 65, ¶ 39. Thus, in determining whether R.C. 5727.111 deprives

Columbia of the constitutional right of equal protection, we must first determine

whether Columbia is similarly situated to Ohio taxpayers that transport alternative

fuels. GTE N. at ¶ 23.

{¶ 96} First, the record before us contains insufficient evidence

concerning the operations of those alternative-fuel suppliers with which Columbia

claims to compete. Thus, because the record is not factually sufficient to make a

valid comparison between the transportation and uses of alternative fuels and

those services provided by interstate-pipeline companies, we may reject

Columbia’s claim on that ground alone. See Lyons v. Limbach, 40 Ohio St.3d at

94, 532 N.E.2d 106.

{¶ 97} Second, Columbia, an interstate-pipeline company, has not

shown that it is similarly situated to Ohio businesses that transport alternative

fuels. Columbia transports natural gas interstate solely by pipeline. In contrast,

6. One Columbia witness defined alternative fuels as a substitute for natural gas that is used for heating or for power generation.

January Term, 2008

29

the transporters of alternative fuels use several different means to transport their

products, including pipelines, tanker trucks, rail cars, and barges. Distinctive

features also exist among the products being transported. For instance, industrial

and electric-power plants are limited in the number of hours that they can burn

certain alternative fuels, such as coal and fuel oil, because of the emissions those

fuels produce when burned.

{¶ 98} Third, Columbia has not negated every conceivable basis that

might support the legislation. Columbia offers little more than a blanket assertion

that there is no identified or apparent rational basis for the differing assessments

on the property of an interstate-pipeline company and the property of a transporter

of alternative fuel. Our job is simply to determine, with great deference, whether

there is a rational basis for the General Assembly’s taxation decisions. See Park

Corp. v. Brook Park, 102 Ohio St.3d 166, 2004-Ohio-2237, 807 N.E.2d 913, ¶ 36.

Each of the distinctions cited above could provide a rational basis for treating

these businesses differently than interstate pipeline companies. Any variations in

the costs of transportation, fuels, labor, insurance, taxes, or regulatory obligations

could provide a rational basis for assessing these companies at a lower rate.

{¶ 99} Columbia raises a similar claim that Ohio’s tax scheme violates

equal protection because the personal property of interstate-pipeline companies

that provide natural gas gathering services in Ohio is taxed higher than the

personal property of Ohio taxpayers that engage in natural gas gathering.

However, between 1993 and 1998, Columbia sold all of its gathering facilities.

Thus, Columbia is not within the class of taxpayers that it claims are the victims

of the purportedly irrational classifications. Because Columbia is not a gatherer

or producer of natural gas in Ohio, it lacks standing to attack the statute’s

constitutionality on the ground that it violates others’ rights to equal protection.

See State ex rel. Harrell v. Streetsboro City School Dist. Bd. of Edn. (1989), 46

Ohio St.3d 55, 63, 544 N.E.2d 924.

SUPREME COURT OF OHIO

30

{¶ 100} Even if Columbia had standing to raise this particular equal-

protection claim, Columbia has not met its burden of negating every conceivable

basis that might support legislation treating these entities differently.

{¶ 101} Accordingly, Columbia’s equal-protection claims lack merit and

we reject proposition of law No. 5.

Conclusion

{¶ 102} The BTA erred in finding that Columbia was a natural gas

company under R.C. 5727.01(D)(4) for the purpose of taxing the personal

property of a public utility. The BTA failed to consider R.C. 5727.02, which

establishes a primary-business test for purposes of R.C. 5727.01. Because

Columbia is primarily engaged in the interstate transportation of natural gas, the

Tax Commissioner correctly found that Columbia was a pipeline company under

R.C. 5727.01(D)(5) and properly assessed Columbia’s personal property at the 88

percent pipeline-company rate in R.C. 5727.111(D).

{¶ 103} In addition, none of Columbia’s constitutional challenges have

merit. Accordingly, Columbia’s cross-appeal is overruled.

Decision reversed.

MOYER, C.J., and LUNDBERG STRATTON, O’DONNELL, and LANZINGER,

JJ., concur.

PFEIFER and O’CONNOR, JJ., concur in judgment only.

__________________

Jones Day, Maryann B. Gall, Phyllis J. Shambaugh, Todd Swatsler, and

Kasey T. Ingram, for appellee and cross-appellant Columbia Gas Transmission

Corporation.

Marc Dann, Attorney General, Barton A. Hubbard and Janyce C. Katz,

Assistant Attorneys General, and Cheryl D. Pokorny, Deputy Attorney General,

for appellant and cross-appellee, Tax Commissioner of Ohio.

January Term, 2008

31

Taft, Stettinius & Hollister, L.L.P., and Fred J. Livingstone, urging

reversal for amicus curiae Ohio School Boards Association.

Thelen, Reid, Brown, Raysman & Steiner, L.L.P., and Andrea Wolfman,

urging affirmance for amicus curiae Interstate Natural Gas Association of

America.

______________________